In the meantime, the vendor has had one rather flat quarter in terms of revenues. Less impressive results were partially due to the fact that Q2 2010 was the best Q2 in IFS history, and partially due to the "lumpiness" in the investments of IFS’ target verticals (for example, the project cycles in the aerospace and defense [A&D] sector). The vendor has a fairly balanced sales pipeline globally, so naturally tragedies such as the Japanese earthquake or political crises in Africa and the Middle East also delay investments. One should not forget about the economic unrest in parts of Europe and the US either.

One Hiccup Doesn’t Change a Positive Outlook

The strength of the Swedish krona (the currency that the company reports its results in) also plays a role, given IFS’ sizeable revenues that come from markets with currently weaker currencies. On the other hand, a solid cash position in a strengthened krona might allow IFS to execute some more tuck-in acquisitions (similar to MultiPlus and 360 Scheduling).

Taking all of that into account, IFS’ slight decrease in overall revenue (but with increases in license revenue) and other areas for the quarter and positive numbers across the board in all key performance indicators (KPIs) for the first half of the year and on a 12-month basis keep the company on track for its annual targets. For the full 2011 year, the outlook remains unchanged, and IFS expects good organic growth in 2011, with stronger license sales and an improvement in earnings before income and tax (EBIT).

Recently I had an in-person briefing with IFS’ top management, which then prompted me to send them several prodding follow up questions. IFS is no stranger to TEC and has been a willing participant in our question and answer (Q&A) articles, never dodging even the “curve ball” questions (for more information, see TEC’s previous article entitled “Playing Devil’s Advocate with an Innovative Vendor’s Techies”). My questions to Dave Eager, director of strategic relations, and Dan Matthews, chief technology officer (CTO), and their answers follow:

PJ: Has your market and competitive landscape changed of late, and if so how?

DE: As you know, many of the markets we serve revolve around capital equipment, or capital projects, so they tend to have long lead times. This makes them less susceptible to fluctuations in the economy. This is one of the factors that enabled IFS to remain not only profitable, but to actually grow our revenue during the economic crisis of 2008 and 2009.

We still have a way to go on the recovery, but we have also seen that this recession has had another impact on the markets we serve, as they are no longer taking a “business as usual” approach of only looking at the “mega vendors” when selecting their business systems. This is because the implementation time is more critical for companies with international operations. Access to information must be seamless and instant across geographies and business units. Functionality must be specific to their industry requirements, but also provide ease of use to facilitate more rapid adoption from their end users. Because of this we are now seeing more activity in larger accounts where we might not have been invited a couple of years back.

PJ: What is your ideal customer profile now, given that you are admittedly staying away from generic widget manufacturing selections where price is the major winning factor?

DE: IFS focuses on industries where at least one of the following four core processes is critical to their business:

(Complex) Manufacturing,

Asset & service management,

(Capital) Projects, and

Complex supply chains (associated with these industries).

Examples of these industries include A&D, Energy & Utilities, Oil & Gas, Engineering, Procurement & Construction (EPC), industrial manufacturing, automotive, and process industries such as food & beverage (F&B) and mining. We become more competitive when two or more of these core processes are addressed in the same project. The more complexity companies in these industries have the better fit they are for IFS.

For example, companies that require support for the lifecycle of their products and/or assets from design, via build (or make) to operate and maintain/service, and even on to decommission are great candidates for IFS Applications. Another example would be companies with multiple “multi” requirements. By that I mean multi-mode production requirements (e.g., engineer to order [ETO], make-to-order [MTO], configure-to-order [CTO], batch, etc.), multi-country, multi-currency, multi-lingual, etc. Our ability to support multiple production modes across multiple regions, with multiple languages and currency requirements on one instance of IFS applications enables companies to not only get up and running more quickly providing faster time to benefit, but with a smaller IT footprint, thus providing a lower total cost of ownership (TCO).

Retail, Mobility, and Other Topics

PJ: In light of the upcoming Retail’s BIG Show 2012 by National Retail federation (NRF), can you please elaborate more on the Centric retail solution in terms of what functionality is offered by Centric vs. IFS, joint customers, etc.?

DE: IFS Retail is a joint venture between IFS and Centric primarily targeting the European market (see here for more info). Since it is a separate entity from IFS I don’t have a lot of details to share with you, but in general, IFS offers all of the back-end ERP functionality, such as financials, purchasing, budgeting, forecasting, inventory, etc. For its part, Centric provides more of the logistics and in-store applications such as assortment planning, warehouse management, transportation management, store operations, and point of sale (POS). Together, the integrated solutions provide a single platform that covers the entire scope of a retail operation’s business processes. If you would like more accurate information that you can write about I can gladly arrange a briefing for you with the IFS Retail team.

PJ: What social and mobile applications are generally available (GA) now and under what exact names, and what is coming out soon? (For more information on the IFS Labs development in 2010, see the related blog post):

DE: IFS has since long offered mobile support as part of our service management solution. What is new now is a much broader general focus on mobile individuals. Some of our smart phone applications, or what we are calling IFS Touch Apps, are currently in the early adopter phase, with a planned GA starting in Q1 2012. The first Touch Apps, which are developed specifically for smart phone deployment, are:

IFS Trip Tracker - The preferred app for anyone who wants to log travel expenses as they are happening and not when they have returned to the office,

These first two will be followed by apps for Customer Relationship Management (CRM) and Time Reporting. In addition to the early adopter program with our TouchApps there are our collaborative learning and unified communications projects, such as IFS Talk (code named Board). These are now finished projects for IFS Labs and we plan to begin rolling them out with the release of IFS Applications 8 next year, or in subsequent service packs.

PJ: How are your major system integrator (SI), independent software vendor (ISV), resellers, and other partnerships going?

DE: One of the things that differentiates IFS from most other vendors in our space, especially those of our size, is that we made a major investment in the late 1990s and early 2000s to develop a strong global direct sales and delivery infrastructure, which today encompasses over 50 countries around the world. As you know, this move not only had an impact on our profitability during that time, but also today it enables IFS to support large global rollouts of IFS applications directly and has contributed to our continued profitability and revenue growth, even during the economic crisis of 2008 and 2009.

That said, we also understand the value of partners, but having an excessive amount of partners can actually have a negative impact in that it can dilute the quality of services these partners provide. Instead, our strategy is to work more closely with a select number of global and regional systems integrators and distributors to ensure we can provide the best possible service to our global customer base. Some examples of recent collaborations with our global SI partners and distributors include the Federal Aviation Administration (FAA) with Lockheed Martin in the US, China Yangtze Power Corporation (CYPC) with UFIDA in China, a global electronics manufacturer in Japan with NEC, France Telecom with Capgemini, and Technip with Infosys.

Getting a Bit “Technobabbly”

PJ: What is your software as a service (SaaS)/on-demand strategy? Is that a factor in your market yet?

DM: IFS recognizes that with relation to business applications there are both drivers and inhibitors to cloud computing in its various forms. The key drivers are the same as in other parts of IT industry, namely the lower capital expenditure achieved through resource sharing with other users, reducing internal competence needs, and faster implementation by shortcutting the process of hardware and software procurement and installation. Inhibitors include the needs for application customization and integration with on-premise legacy systems, trust issues related to placing confidential and secret information in an environment outside the control of the company, legislation which may limit where data is located, and availability of the application.

The term “cloud computing” is these days used to describe several different concepts. IFS can see the following three aspects of cloud computing as relevant for large business applications such as IFS Applications:

Pricing models

Deployment model

Software + Service

For pricing models, although pricing really is a separate issue from cloud computing, the two are linked by expectations that a cloud computing or software as a service offering are priced as a subscription (e.g., monthly, or annually), or for the actual resources used (e.g., CPU hours, network traffic, storage). IFS is observing an emerging interest for subscription pricing in our customer base, and some IFS partners such as NEC have subscription priced offerings for IFS Applications in certain markets. As a contrast IFS has not observed any interest for resource usage pricing and thus does not see that as a viable model for the foreseeable future.

As for deployment models, this is really where the term cloud computing has originated. As you know, a cloud computing deployment model implies that the software is installed in a large scale virtualized data center, where resources such as computing power, storage, and network are shared between different applications. In a private cloud this data center is in house, whereas in community and public clouds it is provided and managed by an external party.

IFS sees its customers initially benefiting from cloud computing deployments through hosting of IFS Applications, and the underlying technology platform, in private and community clouds (Infrastructure as a Service [IaaS]). Understanding our customer’s needs and requirements IFS believe that single-tenant cloud deployments will be preferred over multi-tenant for the next few years at least. Over the next couple of years IFS expects interest in public cloud hosting to emerge as organizations become acquainted with these public clouds through use of other cloud based applications such as mail servers and office applications.

Finally, Software plus Services (S+S) refers to an existing software product being augmented or enriched by integration of cloud based services or functionalities. IFS sees many benefits of leveraging S+S, in particular using cloud based services for functions that require highly varying compute capacity, that need to access or process large amounts of cloud based data, or that serves peripheral or mobile users. IFS is already using S+S for individual functions such as the map functionality in IFS Virtual Map, which can be used to enable service technicians to view inventory locations, or service orders, with real-time traffic information, right from within IFS Applications.

Other examples include modules such as 360 Scheduling, a dynamic scheduling engine for workforce optimization that can be deployed as an integrated component of IFS Applications, or as a best of breed stand alone solution. IFS expects to move additional functions and modules with similar requirements to the cloud in the coming years. The recently announced IFS Cloud initiative so support IFS Touch Apps range of Smartphone apps is an example of using an S+S model for mobile access -- an architectural approach to Smartphone apps unique to IFS.

DE: When it comes to a company’s BI strategy we find that there are the following two scenarios:

Those that want to keep their BI decision separate from their ERP selection, and

Those that prefer to have a robust BI solution built into their ERP system.

The Built-in and By choice options mean that whether a company is looking for a front-to-back BI solution built in to their ERP system, or a new ERP platform that will readily integrate with an existing chosen BI solution (star schemas, etc.), IFS Applications is a cost-effective answer. We are able to support these differing approaches because at the foundation of this solution is prepackaged metadata, so that data within IFS Applications readily plug-and-play not only with our own Microsoft-based BI solution, but also with other popular BI tools.

DM: IFS’ very long-term product strategy does include the goal to offer IFS Applications on additional databases besides Oracle. The pace at which we execute towards this goal is decided by the investment needed, the benefits that would be achieved, and alternative uses of the investment. At present time this balance calls for a long-term evolutionary approach where dependencies and reliance on Oracle database are gradually removed over several years. IFS does not currently see a business case to accelerate this process, but we are monitoring the market development and re-evaluating the situation continuously.

One of the factors causing us to move slowly on this issue is that over recent years the focus of IT environments has migrated from the database to the middle tier. Where in the past the database was the center towards which all integrations, reports, and clients connected, that role is today taken over by the middle tier. This means that it is increasingly important for customers to choose middle tier platform (to reuse competence, for example) and decreasingly important to choose database. IFS is the only major ERP vendor that offer customers a choice of middle tier platform: RedHat JBoss, Oracle WebLogic, and IBM WebSphere. Finally the databases are slowly moving in the direction of becoming "black boxes" that manage and maintain themselves.

A second factor is the gradual and also long-term evolution towards cloud and SaaS. It could very well turn out that choice of database becomes a no-issue due to cloud usage before it becomes an issue for the other aforementioned factors.

A Peek into the Future

PJ: Is there anything that you are at liberty to volunteer on the company's future moves, i.e., new functional scope, verticals, etc.? You did mention something about augmented reality and gesturing (Microsoft Kinect-like) tools during our last meeting, which caught my attention.

DE: From a product development perspective we will continue to focus on our target industries and the four core processes that are critical to their business. In addition to our functional scope, will continue to focus on development themes which include usability, mobility, sustainability and the effective utilization of cloud computing. IFS Labs, our development testing ground, will continue to explore ways to incorporate emerging technologies into IFS Applications to ensure we deliver a solution that is “future proof”.

Some of the areas we are exploring in the lab today include augmented reality, motion based user interfaces (UIs), additional ways to leverage the smart phone and social media in an attempt to combine consumer technologies with business applications to create user-friendly enterprise tools that make everyday work more productive, efficient and fun. I think it would be a good idea to schedule a briefing with you on IFS Labs and some of the activities we are working on.

Dear readers, what are your views, comments, opinions, etc. about the outlined market trends, and about IFS per se? How do you think the innovative vendor will fare against their formidable competitors in light of their espoused strategies and recent concrete moves? If you are IFS Applications users, I would appreciate hearing about your experiences with the product and the company.